(Kitco News) - Silver’s record-breaking run is being driven less by hedge funds and more by a wave of physical demand that the mining industry cannot quickly meet, a longtime U.S. silver mining executive said in an interview with Kitco News.
“The physical market is driving the financial market in a way that it hasn’t done in my career,” Phil Baker said, describing what he heard at the London Bullion Market Association’s recent annual meeting. “It was interesting. I was at the LBMA annual meeting and the quote of the meeting was ‘physical is king.’”
“We’re in a very different place than we’ve been in the last 20 years.”
Baker, the former chief executive of Hecla Mining and now an adviser in the sector, said the stress he observed among bullion professionals was unlike anything he had seen before. “I was really struck at the LBMA at the stress that was felt by the market participants with silver, and it was… stress that I had not seen before,” he said. “It’s really clear to me that these guys are not going to allow their inventory levels to fall to the same levels they were before.”
India as “the driver”
While investors have focused on Western futures markets, Baker argued that India now sits at the center of the silver story.
“For me, the thing that really drives silver is what’s happening in India,” he said. “That is the driver. That literally is the driver.”
He noted that India, now the world’s fifth-largest economy, has seen silver imports soar. In October, India imported around 60 million ounces of silver, compared with about 15 million ounces a year earlier, he said. “Despite the fact that silver is at all-time highs in rupee terms, the demand has been, as I described at the Perth Mint, insatiable,” Baker said.
According to Indian trade and government data, India’s silver imports did surge in 2023–24 after a sharp drawdown in prior years, making it one of the world’s largest silver consumers alongside China.
Baker said the destination of the flow of metal out of London has been unmistakable. “If you look at where the silver went from London, it went to Mumbai,” he said.
In some cases, he added, the physical scramble was so intense that silver was moved by air from Asia. “To be clear, the silver can come from anywhere and in fact, to resolve things you saw more silver come out of China. It will move anywhere,” he said. “But the fact that it was moving by plane was really shocking. It shows you the amount of stress that they were under.”
Baker said he will be watching one metric most closely: Indian imports. “The thing that I’m going to continue to watch is where is the demand in India? Is the demand continuing? Because that is the underlying driver of overall demand for silver,” he said.
From “just-in-time” to “don’t be short silver”
On top of India’s jewelry and bar demand, Baker said industrial buyers are changing their behavior as they confront higher prices and tighter inventories.
CME delivery notices for December showed about 8,800 contracts - roughly 44 million ounces - standing for delivery, with a growing share going to commercial users. Baker said his message to those users for the past 18 months has been blunt. “Don’t be short silver,” he said. “They’re finally putting the silver in place so that they’re not short.”
Industrial demand has already reshaped the market. “Out of a billion ounces of demand for silver, 55% or so is for industrial,” he said, citing uses from photovoltaics to electronics. “They’re going to try thrifting, but they can’t thrift fast enough. And so the only alternative they have is to be long silver.”
Independent surveys back up that picture: industrial applications - including solar panels, electronics and automotive - now account for more than half of global silver demand, according to the Silver Institute’s World Silver Survey, which also shows record photovoltaic demand in recent years.
Baker does not believe the entire inventory system is collapsing, but he does think practices are changing. “I don’t think the inventory model is breaking down,” he said. “[You’ve] got to have the silver on hand… because if you don’t, you’re going to be forced to have your margin squeezed on all the different industrial uses for silver.”
“Stress that I had not seen before”
The combined pull from India, U.S. bar buyers and industrial users is forcing a reset in how much metal has to sit in vaults, Baker said.
“There’s this musical chairs as to whether there’s going to be enough silver for each individual market,” he said. “What has certainly happened is that the demand has grown - particularly the investment demand - in a way that there’s not enough available silver to be in inventory in each of those markets.”
Because of that, he expects higher baseline stocks everywhere. “It is going to be a step up in the amount of inventory that you have in each of these locations,” he said. “The amount of inventory that they’re going to require in each of these markets, I think, is a step function higher than what it’s been in the past.”
He warned that the recent squeeze - when a CME outage coincided with heavy physical demand and lease rates spiked - may not be a one-off. “The squeeze occurred. It’s been resolved for the moment,” Baker said. “But it can happen again. Maybe it’s in the Comex, maybe it’s in Mumbai, maybe it’s in Singapore… just given the stress that the market went through, I think it’s likely.”
A five-year deficit and a long wait for mine supply
On the supply side, Baker was blunt: the mines won’t fix this any time soon.
“Remember there’s been a deficit now for five years,” he said. “The deficit this year should be 100 to 200 million ounces, and that’s on top of deficits that have exceeded that over the last four years.”
Independent data suggest a similar pattern. The World Silver Survey shows the global silver market running consecutive deficits in recent years as demand has outpaced mine production and recycling.
Baker said the constraint is not ore in the ground, but time and permitting. “From discovery to production is not five to ten years. It’s ten to twenty years in today’s regulatory environment,” he told Kitco. “Even brownfield expansion can take five to ten years.”
He believes the industry has already passed peak silver. “Peak silver was 2016 at 900 million ounces,” he said, adding that “we’re going to always be below this 900 million ounces of silver from the mines, at least for the next decade.”
At the same time, the biggest operations are not big enough to close the gap. Last year, the top five silver mines globally produced between 41 million and 17 million ounces each, leaving even the fifth-largest mine at only about 2% of world output, Baker noted.
“It gets balanced only by silver that sits in the hands of individuals or funds,” he said. “There is no other source… The only way silver comes back into the market that fills that inventory is from large institutions, from family offices, from individuals. And it takes a lot of those to get mobilized.”
Recycling can’t close the deficit either, in his view. “Recycling only represents about 150 to 200 million ounces, regardless of what happens to the price,” he said. “There just is not the infrastructure in place… So the growth has to come from silver that’s already in existence… and from the mines, but the mines are not going to deliver that growth for a long time to come.”
“Insatiable” investment demand and a generational hold
Baker also pointed to a “generational” shift in how Western investors treat silver.
Looking back over 15 years of bar-and-coin demand, he said, “The U.S. is by far the biggest consumer of bars and coins… about 1.5 billion ounces… has been consumed.” Much of that metal now sits in depositories and retirement accounts, he said. “Those IRAs — in the past, people would put silver into their IRA and they would be done. Now they’re adding to it and they’re continuously adding to it.”
Even when estates change hands, the metal tends not to come back. “Frequently, when someone would pass and leave to their heirs their silver, the heirs would sell the silver,” Baker said. “What appears to be happening is those heirs are retaining that silver. So it has become a long-term generational sort of asset that people are retaining.”
Gold, chaos and the silver “catch-up”
Baker tied silver’s move back to the same macro forces that have driven gold to record highs.
“It really goes back to why people are interested in gold,” he said, citing fiscal deficits, tariff uncertainty and geopolitical flashpoints. “You think about what’s happening in Ukraine. You think about what’s happening in China… there’s all those reasons that gold is in demand. And as a result, silver is following… Silver’s just doing a catch-up.”
He expects silver to continue to close the gap with gold. “The gold–silver ratio is an important thing to look at in this type of market,” he said. “I think you’ll see silver continue to reduce that ratio as it outperforms gold.”
With market deficits, rising industrial demand, India’s “insatiable” buying and long lead times for new mines, Baker argued that the balance of power has shifted.
“Physical is king,” he said. “We’re in a very different place than we’ve been in the last 20 years.”